Columbus S. Power Co. v. Pub. Util. Comm.

• Decision Date: 03 November 1993
• Docket Number: No. 92-1773,92-1773
• Citation: 67 Ohio St.3d 535,620 N.E.2d 835
• Parties: , 148 P.U.R.4th 109 COLUMBUS SOUTHERN POWER COMPANY, Appellant, v. PUBLIC UTILITIES COMMISSION OF OHIO et al., Appellees.
• Court: Ohio Supreme Court

Page 535

67 Ohio St.3d 535

620 N.E.2d 835, 148 P.U.R.4th 109

COLUMBUS SOUTHERN POWER COMPANY, Appellant, v. PUBLIC UTILITIES COMMISSION OF OHIO et al., Appellees.

No. 92-1773.

Supreme Court of Ohio.

Submitted June 2, 1993.

Decided Nov. 3, 1993.

Marvin I. Resnik, Kevin F. Duffy, James R. Bacha, James L. Reeves, Columbus and F. Mitchell Dutton, for appellant.

Lee I. Fisher, Atty. Gen., James B. Gainer, Duane W. Luckey, Thomas W. McNamee, William L. Wright, Jeffrey D. Van Niel and Paul A. Colbert, Asst. Attys. Gen., for appellee.

Barry Cohen, Interim Consumers' Counsel, Michael McCord, Thomas W. Atzberger, Evelyn R. Robinson-McGriff, Richard W. Pace, Sr., and Barry Cohen, Associate Consumers' Counsel, Columbus, for intervening appellee Office of Consumers' Counsel.

Emens, Kegler, Brown, Hill & Ritter, Samuel C. Randazzo and Richard P. Rosenberry, Columbus, for intervening appellee Indus. Energy Consumers.

Chester, Hoffman, Willcox & Saxbe and John W. Bentine, Columbus, for intervening appellee Ohio Council of Retail Merchants.

PER CURIAM.

R.C. 4903.13 governs our review of PUCO orders. It provides in pertinent part:

"A final order made by the public utilities commission shall be reversed, vacated, or modified by the supreme court on appeal, if, upon consideration of the record, such court is of the opinion that such order was unlawful or unreasonable. * * * "

In MCI Telecommunications Corp. v. Pub. Util. Comm. (1988), 38 Ohio St.3d 266, 268-269, 527 N.E.2d 777, 780, we interpreted this standard of review:

"Under the 'unlawful or unreasonable' standard specified in R.C. 4903.13, this court will not reverse or modify a PUCO decision as to questions of fact where the record contains sufficient probative evidence to show that the PUCO's determination is not manifestly against the weight of the evidence and is not so clearly unsupported by the record as to show misapprehension, mistake, or willful disregard of duty. Dayton Power & Light Co. v. Pub. Util. Comm. (1983), 4 Ohio St.3d 91, 4 OBR 341, 447 N.E.2d 733; Columbus v. Pub. Util. Comm. (1979), 58 Ohio St.2d 103, 12 O.O.3d 112, 388 N.E.2d 1237. This court does, however, have complete and independent power of review as to questions of law. Legal issues are, therefore, subjected to a more intense examination than are factual questions. Consumers' Counsel v. Pub. Util. Comm. (1983), 4 Ohio St.3d 111, 4 OBR 358, 447 N.E.2d 749."

We consider and resolve the six errors alleged by CSP with these standards in mind.

I. THE PHASE-IN PLAN

It is axiomatic that the PUCO, as a creature of statute, may exercise only that jurisdiction conferred upon it by the General Assembly. Dayton Communications Corp. v. Pub. Util. Comm. (1980), 64 Ohio St.2d 302, 18 O.O.3d 478, 414 N.E.2d 1051; Pike Natural Gas Co. v. Pub. Util. Comm. (1981), 68 Ohio St.2d 181, 22 O.O.3d 410, 429 N.E.2d 444; Consumers' Counsel v. Pub. Util. Comm. (1981), 67 Ohio St.2d 153, 21 O.O.3d 96, 423 N.E.2d 820; Werlin Corp. v. Pub. Util. Comm. (1978), 53 Ohio St.2d 76, 7 O.O.3d 152, 372 N.E.2d 592; Ohio Pub. Interest Action Group, Inc. v. Pub. Util. Comm. (1975), 43 Ohio St.2d 175, 72 O.O.2d 98, 331 N.E.2d 730.

While the General Assembly has delegated authority to the PUCO to set just and reasonable rates for public utilities under its jurisdiction, it has done so by providing a detailed, comprehensive and, as construed by this court, mandatory ratemaking formula under R.C. 4909.15. See Gen. Motors Corp. v. Pub. Util. Comm. (1976), 47 Ohio St.2d 58, 1 O.O.3d 35, 351 N.E.2d 183.

R.C. 4909.15(A) requires the PUCO to make a series of determinations--the valuation of the utility's property in service as of date certain (R.C. 4909.15[A] ), a fair and reasonable rate of return on that investment (R.C. 4909.15[A] ), and the expenses incurred in providing service during the test year (R.C. 4909.15[A] ). Once those determinations are made, the PUCO is required to "compute the gross annual revenues to which the utility is entitled" (emphasis added) under division (B) by adding the dollar return on the company's investment (R.C. 4909.15[A] ) to the utility's test year expenses. If the charges under the utility's existing tariff are insufficient to generate those revenues, the PUCO is required to fix new rates that will raise the necessary revenue. R.C. 4909.15(D) provides in part:

"When the public utilities commission is of the opinion, after hearing and after making the determinations under divisions (A) and (B) of this section, that any rate * * * is, or will be, unjust, unreasonable * * * or that the maximum rates * * * chargeable by any such public utility are insufficient to yield reasonable compensation for the service rendered, and are unjust and unreasonable, the commission shall:

" * * *

"(2) With due regard to all such other matters as are proper, according to the facts of each case,

" * * *

"(b) * * * fix and determine the just and reasonable rate * * * that will provide the public utility the allowable gross annual revenues under division (B) of this section, and order such just and reasonable rate * * * to be substituted for the existing one." (Emphasis added.)

In this case, the PUCO made the determinations required by division (A) and computed the gross annual revenues in accordance with division (B). It then found that such revenues exceeded the revenues generated under CSP's present rate schedule (by $123,022,000) and, noting the magnitude of the increase, ordered a three-year phase-in of the gross annual revenue increase associated with the converted Zimmer facility ($117,517,000). Further, the PUCO authorized recovery of the deferrals created in years one and two of the phase-in over a ten-year period, with carrying charges.

CSP initially argues that the PUCO-ordered phase-in of its revenue increase violates the statutory formula by denying it the gross annual revenues to which it has otherwise been found entitled under R.C. 4909.15(B). The PUCO argues that the "all such other matters as are proper" language of R.C. 4909.15(D)(2) provides the PUCO with broad discretion to consider a variety of matters in setting rates, including, as here, the reasonableness of the magnitude of a one-time increase.

In the leading case of Consumers' Counsel v. Pub. Util. Comm. (1981), 67 Ohio St.2d 153, 166, 21 O.O.3d 96, 104, 423 N.E.2d 820, 828, we construed "all such other matters as are proper" more narrowly: "It is our view that R.C. 4909.15(D)(2)(b) is designed to allow the commission [PUCO] to make minor adjustments to rates ascertained by the statutory formula when the criteria upon which the rates are based are skewed for one reason or another. Thus, under R.C. 4909.15(D)(2)(b), the commission may smooth out anomalies in the ratemaking equation that tend to make the test year data unrepresentative for ratemaking purposes."

We have applied this exception to the mandatory ratemaking formula sparingly, stating in Dayton Power & Light Co. v. Pub. Util. Comm. (1983), 4 Ohio St.3d 91, 95, 4 OBR 341, 344, 447 N.E.2d 733, 736, that such "ad hoc tinkering with the statutory formula is [to remain the exception and] not to become the rule." See, also, Consumers' Counsel v. Pub. Util. Comm. (1981), 67 Ohio St.2d 372, 21 O.O.3d 234, 424 N.E.2d 300; Ohio Water Serv. Co. v. Pub. Util. Comm. (1983), 3 Ohio St.3d 1, 3 OBR 300, 444 N.E.2d 1025 (refusal to find an anomaly); Columbus v. Pub. Util. Comm. (1984), 10 Ohio St.3d 23, 10 OBR 175, 460 N.E.2d 1117 (the matter precipitating the adjustment had no basis in the underlying ratemaking statutes). Moreover, we have applied the exception only to permit recovery of out-of-test-year expenses in appropriate circumstances, see Montgomery Cty. Bd. of Commrs. v. Pub. Util. Comm. (1982), 1 Ohio St.3d 125, 1 OBR 163, 438 N.E.2d 111, and Consumers' Counsel v. Pub. Util. Comm. (1983), 6 Ohio St.3d 412, 6 OBR 459, 453 N.E.2d 590, and have not applied it to adjust the date certain valuation of rate-base items, see Consumers' Counsel v. Pub. Util. Comm. (1979), 58 Ohio St.2d 449, 12 O.O.3d 378, 391 N.E.2d 311, Consumers' Counsel v. Pub. Util. Comm. (1981), 67 Ohio St.2d 372, 21 O.O.3d 234, 424 N.E.2d 300, and Ohio Edison Co. v. Pub. Util. Comm. (1992), 63 Ohio St.3d 555, 589 N.E.2d 1292.

It cannot be seriously argued that the phase-in of CSP's rates, precipitated by the inclusion of the Zimmer facility in rate base, falls within the revenue adjustments contemplated by our 1981 Consumers' Counsel decision at 67 Ohio St.2d 153, 21 O.O.3d 96, 423 N.E.2d 820. Clearly, the PUCO did not order the "adjustment" (or phase-in) because the Zimmer valuation under R.C. 4909.15(A)(1) was unrepresentative. Rather, it believed the result of the computation required under R.C. 4909.15(B) to be unreasonable on its face. Thus, the lawfulness of the PUCO's phase-in plan hinges on whether the PUCO has the authority to reduce, or phase in, the gross annual revenues computed under R.C. 4909.15(B) in the absence of anomalies in the underlying ratemaking criteria.

The PUCO and intervening appellees, Industrial Energy Consumers et al., argue that such authority is provided by our decision in Indus. Energy Consumers v. Pub. Util. Comm. (1991), 62 Ohio St.3d 440, 584 N.E.2d 653. We disagree. In that case, Columbia Gas of Ohio, Inc. filed an application to increase the rates of its general service class. Pursuant to a separate investigation initiated under R.C. 4905.26, the PUCO determined that the rates of another customer class, special contract customers (R.C. 4905.31), were generating an earned rate of return for the company of 44.85 percent. The PUCO combined its investigation of special contract rates with Columbia's rate cases (bringing all of the company's revenues before it) and, in setting rates under R.C. 4909.15(D), credited the "excess special contract revenues" to the general service revenue requirement, yielding a rate of return found appropriate for the company as a whole. The...